Corporate social responsibility and financial performance: bidirectional relationship and mediating effect of customer loyalty: investigation in Sweden

• DOI: https://doi.org/10.1108/CG-10-2020-0472
• Published date: 10 August 2021
• Date: 10 August 2021
• Pages: 1495-1518
• Subject Matter: Strategy,Corporate governance
• Author: Abir Hichri,Moez Ltifi

Corporate social responsibility and

financial performance: bidirectional

relationship and mediating effect of

customer loyalty: investigation in Sweden

Abir Hichri and Moez Ltifi

Abstract

Purpose –The study is based on a hybrid model composed of accounting and business data and is

amongst the first to test theimpact of corporate social responsibility (CSR) performanceon the financial

performance of the company,as well as the impact of financial performance on CSR performance.The

bidirectionallogic chosen by the study is rarely adopted in the global context and has never beentested

in the Swedish context. Moreover, the purpose of this paper is to test the mediating effect of customer

loyalty on the company’s CSR performance-financial performancerelationship to assess this effect over

the longterm. This design has been neglectedin previous studies.

Design/methodology/approach –Data was collectedfrom a sample of 110 Swedish companies during

the period 2009–2019.This study collects the data from the ThomsonReuters Eikon database. A multiple

regressionanalysis was performed to test the hypotheses.

Findings –The results confirmedthe bidirectional relationship betweenCSR performance and company

financial performance. Thismeans that CSR performance positively influences the company’sfinancial

performance. Similarly, financial performance positively influences the company’s CSR performance.

Moreover, customer loyalty has a positive and significant mediating effect on the company’s CSR

performance-financialperformance relationship.

Originality/value –This studyadds several inputs. The first contributionof the research is to test a hybrid

model composedof accounting and commercial data.This model is amongst the first to test the impact of

CSR performance on thefinancial performance of the company and the impact of financialperformance

on CSR performance. The second contribution is the bidirectional logic chosen by the study which is

rarely adopted in the global context and has never been tested in the Swedish context. The third

contribution is to test the mediating effect of customer loyalty on the company’s CSR performance-

financial performance relationship to assess this effect over the long term. This design has been

neglected in previous studies. The fourth contribution is the choice of the field of investigation for the

reliabilityof the data used and the generalisation of the resultsobtained.

Keywords Customer loyalty, CSR performance, Mediating effect, Financial performance,

Bidirectional relationship

Paper type Research paper

1. Introduction

As companies find themselves in a very dynamic environment and in a fiercely competitive

situation, their main objectives, regardless of their sector of activity, size or nationality, are

profit maximisation and survival. These objectives can only be achieved by taking into

account the companies’ needs and expectations. Which plays an important role in their

decisions. In this sense, the concept of social responsibility has generated a lot of interest

from companies (Manrique and Mart_ı-Ballester, 2017). The corporate social responsibility

Abir Hichri is based at the

Student in Finance and

Accounting Methods,

Faculty of Economic

Sciences and

Management –Sfax,

University Of Sfax, Tunisia,

Tunisia, Tunisia.

Moez Ltifi is based at the

College of Science and

Humanities –Al-Duwadmi,

Shaqra University, Al

Duwadmi, Saudi Arabia,

and Higher Business

School –Sfax, Sfax

University, Sfax, Tunisia.

Received 19 October 2020

Revised 15 January 2021

6 April 2021

11 May 2021

23 June 2021

1 July 2021

Accepted 5 July 2021

DOI 10.1108/CG-10-2020-0472 VOL. 21 NO. 7 2021, pp. 1495-1518, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 1495

(CSR) approach is considereda strategic choice of companies (Partalidou et al., 2020). The

term CSR leads the initiatives of companies towards a goal to be achieved which is the

sustainability of the relationship with stakeholders especially with consumers (Hegde and

Mishra, 2019).

Awareness of social responsibility began with the advent of the company itself, but the modern

concept of CSR performance is a recent phenomenon. With increasing pressure from civil

society and others, companies are gradually adopting ethical and social responsibility values to

balance the expectations of different stakeholders (Maqbool and Zamir, 2019).

CSR performance encompasses “the economic, legal, ethical and discretionary

expectations of society and organisations at a given point in time” (Maqbool and Hurrah,

2020). By the same token, CSR begins with responsibility and leads to the ultimate attitude

of altruism. Today, corporate social attention has led to the emergence of an important new

concept in business research, which is CSR performance. As all companies are connected

with their environment, CSR performance goes beyond the previous framework, which only

concerns shareholders’ interestsin the previous research.

However, CSR performance supports that companies should be responsible for all

stakeholders (including shareholders, customers, staff, suppliers, banks, regulators,

environment and society), Furthermore, companies should also be responsible for social

issues, which have been neglectedin previous research.

CSR activities can help to highlight the company’s products in the market in an optimal way

(help companies to avoid fines, generally lead to a better financial performance (FP)

consisting of preserving and increasing current capital, increasing sales, reducing costs,

increasing customer loyaltyand improving efficiency and business value).

As a result of globalisation, companies are obliged to integrate CSR performance into their

operations by including adjacentareas such as FP (Fiandrino et al.,2019). Corporate social

initiatives also influence consumer perception, motivation and behaviour (Zasuwa, 2019).

Customer awareness of CSR performance has a positive impact on the image and

reputation of the company (Nyarku and Ayekple, 2019). Thus, investing in CSR

performance positively influencesorganisational pride (Hameed et al.,2019).

The company’s performance has focussed mainly on business objectives and does not

consider ecological and societal aspects, which have not been sufficiently recognised as

having great potential (Schavana et al., 2019). CSR performance is part of a profit

maximisation perspective. Many studies have attempted to examine the relationship

between CSR performance and FP empirically. There are studies that affirm the positive

relationship between CSR performance and the FP of the company (Maqbool and Bakr,

2019). Whilst other studiesconfirm the negative relationship between CSR performanceand

FP, as CSR performance bringscosts caused by agency problems and inefficient allocation

of resources and the like Jonathan etal. (2019).

These mixed results are explained by the use of different measurement indices for CSR

performance or by the poor specification of the research model. The link between CSR

performance and the FP of companies has gainedweight in the management literature. Our

study attempts to address this gapby adopting a cause and effect approach between CSR

performance and a company’s FP. The interrelationship between CSR performance and

corporate FP is an indispensable matter to study. The logic of the matter presupposes a

positive bidirectional relationship between these two concepts. This is justified by several

empirical studies (Galant and Cadez, 2017;Partalidou et al., 2020). To this end, this study

will update the assessment of the bidirectional relationship between CSR performance and

the FP of companies in the fertile ground (Sweden).

On the other hand, the link between CSR performance and consumer behaviour, mainly

customer loyalty in our case, requires a great deal of attention. Although this relationship

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